Romney Predicts Big Surplus, Calls For Tax Cut After Record $2 Billion Month
By Michael Norton, Amy Lambiaso and Cyndi Roy for the State House News Service
       The state collected more tax revenue in April than in any single month ever, prompting Gov. Mitt Romney on Monday morning to predict a budget surplus of hundreds of millions of dollars and claim there’s now no reason not to deliver on an income tax cut approved by voters in 2000.
       At a press conference to announce John Cogliano as the state’s new transportation secretary, Romney broke the news, saying receipts in April were $318 million above a benchmark revised upwards just two weeks ago. Tax collections are running $950 million ahead of the revenue forecast used to assemble this year’s state budget, and Romney predicted they’ll total about $1 billion above the original forecast by the end of the fiscal year June 30.
       “It’s an extraordinary amount of good news,” Romney said.
       When this fiscal years ends, Romney said, state government will have a surplus “in the hundreds of millions of dollars.” Romney declined to more specifically estimate a projected surplus because it’s too early to say how much supplemental spending and budgetary reversions will be recorded in the next two months.
       Romney earlier this year proposed reducing the state income tax rate from 5.3 percent to 5 percent. The House, in the budget it approved on Friday, did not include the tax cut, with Democrats saying structural budget imbalances and unmet spending needs make it premature to cut taxes. The House voted to study the issue instead.
       The governor says he expects Democrats will propose many ways to spend the unexpected tax revenues. “The voters have told us that that’s not our right, that instead we are to return to them this money,” he said.        “The surplus is large. We’ll either spend it or give it back to the citizens and I say it’s time to give it back to the citizens. There’s no question but that we as a state can afford to honor the will of the votes and return their tax rate to 5 percent.”
       The Senate budget is due out in mid-May. Those with an eye on Beacon Hill said the unexpected revenue surge was good news for the state’s economy, but cautioned the governor and lawmakers against implementing any tax cuts or new permanent program spending.
       “Clearly, this is unexpected good news,” said Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation. “But there are several cautionary points to emphasize.”
       Much of the increased revenue is from capital gains taxes, one of the most volatile sources of state revenues, Widmer said. He also pointed out that the state is subject to losing millions of dollars in the long and short term through the potential elimination of federal Medicaid reimbursements due to budget cuts and rules interpretation.
       Romney said the revenue surge also means this year’s state budget is structurally balanced. “We will not need to rely upon reserves or rainy day funds in order to balance the budget for the ’05 fiscal year,” Romney said.
       But Senate Ways and Means Chairwoman Sen. Therese Murray (D-Plymouth) says a structural deficit remains.
       “April's revenue figures certainly come as good news,” Murray said in a statement. “However, a structural deficit for FY ‘05 of approximately $735 million remains. This is something that we have to address as we prepare the Senate Ways and Means FY ‘06 budget recommendations.”
       Murray was not available to elaborate.
       Senate Minority Leader Brian Lees (R-East Longmeadow), asked today if the income tax cut would be proposed during Senate budget debate, said: “Oh yeah.”
       Sen. Robert O’Leary (D-Barnstable) said the state ought to spend the excess money in areas that have been cut or neglected during the last several years, such as health care and higher education.
       “When all is said and done, I don’t think the dollars are there” for the tax cut, he said.
       State budget writers since 2001 have relied on one-time revenues and reserve funds to keep the budget balanced in the face of a recession that cut deeply into the state’s tax base, prompting spending cuts and tax and fee increases.
        A spokesman for House Ways and Means Chairman Robert DeLeo (D-Winthrop) said the chairman is “encouraged by the numbers,” but wants to learn more.
       “DOR isn’t able to tell us right now what exactly is driving those numbers, whether it’s capital gains or real growth in wages,” said spokesman James Eisenberg. “We need to see what’s behind those numbers so that we don’t commit the sins of the last economic downturn.”
       The implosion of capital gains tax revenues was a major factor in the
budget deficits that accrued in the early 90s.
       The Department of Revenue reported Monday that tax collections in April were up 11.2 percent over April 2004. Income tax receipts were up 18.5 percent for the month, withholding taxes were up 1.8 percent, sales and use tax receipts nudged upwards by 3.2 percent, and business tax collections in April plummeted 47 percent for the month. The state collected more than $2 billion in tax receipts during April.
       Opponents of the tax rollback say the unanticipated revenue should be used to return some of the $3 billion cut from the state budget during the fiscal crisis.
       House Majority Leader John Rogers (D-Norwood), former Ways and Means chairman, argued during the House’s budget debate last week that the budget remains structurally imbalanced due to the state’s continued reliance on one-time revenues. He said the revenue spike is due mainly to increases in capital gains taxes, estate taxes and bonus payments. Approving a tax cut at this time would be “fiscally reckless.”
       “It’s a basic value choice,” said Noah Berger, executive director of the
Massachusetts Budget and Policy Center. “Do we say it was a good idea to cut half a billion dollars from higher education, or do we say no, it was unfair for the state to cut the department of education, health care, and we should use that money to restore some of those cuts?”